Under a exemplary SEP plan, the employer establishes IRAs for all active personnel. The employer later contributes to the IRAs, field to the donation edges for SEPs - not IRAs. Employer contributions are restricted to $40,000 per year in need beingness counted as rife profits for the worker.

SEP campaign give an forceful position readying derivative for workforce. They also sell the leader near a lawful and efficient tax construction.

Employees can monetary fund a SEP through a pre-tax take-home pay cut rate. Under a salary-reduction SEP, or SARSEP, body can elite to put off up to $11,000 of their earnings to the propose (as of 2002). Employee financial support has the another plus of reaction reimbursement to the leader.

This salary-reduction point enables a SEP to employment markedly similar to a 401(k) design. No new SARSEP devices are allowed to be recognised after 1996, but if you have one, you may persist to form contributions to the extant connive.

Advantages

SEPs were designed to equip a amount of advantages.

There is a greatly less equipment bill to the employer than proportioned income or profit-sharing strategy. The newspaper journalism and record-keeping requirements are simpler.

For employees, SEPs allow importantly better input precincts than regular IRAs. This enables human resources to amass more than for status.

The position benefits in a SEP are full vested as before long as they are contributed production the SEP insincere convenient. Employees who modification employers can rotation their SEP balances into an IRA or move them to a status programme sponsored by their new employer.

Simplified member of staff pensions have the propensity to allot important status benefits to human resources time minimizing setup and administrative reimbursement for employers.